Could technology cause more to self-insure?

Technology and real-time data demonstrate the potential to shake-up practices within the centuries-old insurance industry.

Georgina Balfe, product and customer lead at commercial insurance platform Aurora, says: “For far too long the industry has been focused on dealing with claims that have already been made, rather than helping customers get ahead of potentially costly risks.

“Technology and data enrichment is changing this by giving customers access to detailed, real-time insights about the risks they may be facing.”

But experts Insurance Post spoke to feel we are talking about evolution rather than revolution, and the core principles of general insurance should remain the same, whether underwriting and claims management utilises data from devices such as the Internet of Things (IoT) or not.

After all, risk management – although not as advanced as currently with cyber (see Box 1) – has been key for larger commercial risks for decades.

While personal lines may lag, there is nothing new about insurers imposing conditions on cover.

Patrick Hayward, insurance consultant at Altus Consulting, says: “Requirements to use five-lever mortice deadlocks and window locks are standard for home insurance. Car manufacturers have also helped move the needle by introducing various technologies in the insured vehicles.

“Traditionally, compliance with such terms would be dressed up with premium savings or better terms of cover but these quickly turned into policy risk requirement demands.”

Consumers have also long been able to obtain reduced premiums for motor cover via telematics for safe driving, for household cover by introducing smoke detectors, and for medical insurance – via Vitality – for looking after their health.

But such sweeteners may now become much more commonplace.

Same principles

In a nutshell, what we are likely to see is technology accelerating old principles, with the risk management approach insurers have been employing for large corporate risks filtering down to the regional space and to SME, micro-SME, and personal lines business.

Andy Jones, director of risk consulting at RSA, says: “If insurers start using gamification to encourage positive risk management, it could help to reduce or stabilise premiums.

“It’s all about nudging people to adopt good practices and let go of bad ones. But, although you get the greatest numbers to engage with lower down the tree, you can’t have the same relationships as you did with 100 players in the corporate space. So, it will be challenging.”

Insurers should receive a PR boost by being perceived as helping to stop the claim instead of just making money and paying out after it, according to experts.

Rory Yates, global head of strategy at technology platform provider for the insurance industry EIS, adds: “The general insurance space is a price-led industry, which doesn’t provide much in the way of other services, but risk mitigation does. So it should improve the reputation of an industry that has little trust from consumers.”

However, incumbent insurers risk increased rivalry from insurtechs, who they are already starting to lose market share to. There are also other potential downsides, although none of these seem totally insurmountable.

Joel Lagan, head of marketing and partnership at commercial insurance data platform Planck, says: “I still have concerns about privacy, and I expect these to increase as AI becomes commercialised, but I’m optimistic these developments will not only make people safer, but also control premiums.

“We are giving the coalface perspective back to the underwriters by using technology, so that’s a good thing.”

Karun Arathil, senior analyst for insurance at researchers Celent, said: “It will definitely be a different insurance world in the next five years, but the potential problem for insurers is that prevention in some areas will be so effective that there won’t be any claims.

“This could result in some people deciding they don’t need the core insurance mechanism. But insurers could still be in demand for risk management, so they may be able to diversify.”

Early days

Despite this wealth of surmising, examples of such new technology already being used on the personal lines side remain distinctly fragmented.

For example, Hiscox and Admiral introduced Leak Bot devices to help policyholders reduce the risk of water damage, Yates is aware of pet insurers who use smart collars to offer premium discounts for active dogs, and Arathil refers to travel insurers using real-time data to offer partial refunds if flights are delayed for a few hours.

Not everyone feels progress will be that rapid, and if the IoT is going to take off, people will have to start using it and this might not happen in serious volumes for a decade or more.

Flood sensors could become more important when the Flood Re protection expires in 2039, and even if insurers start giving discounts for sensors linked to the IoT in white goods, existing white goods might not need replacing for 10 to 12 years.

Matthew Connell, director of policy and engagement at the Chartered Insurance Institute, says the message for the industry from telematics was that policyholders felt spied on by insurers and didn’t see so much benefit for themselves.

He says: “Similarly, with white goods I think people will be wary until they can see a significant benefit to them. I’m sure the technology is there to do it but the human element to use the technology isn’t.”

Mark Patterson, partner and head of general insurance at Deloitte, even doubts there will be much marketing value in the new devices unless they are bundled up in broader offerings, and thinks insurers need to revisit their value propositions.

He feels a broader home monitoring, including features such as the upkeep of the house with a bit of insurance thrown in, could appeal but is probably still two or three years away.

Patterson says: “A survey we conducted a couple of years ago showed overwhelmingly that consumers had an aversion to connected insurance products like telematics in cars and devices in homes to proactively manage leaks.

“The main reasons were concerns about data privacy and wanting simplicity. If they are asked to attach some device in their basement, they tend to view it as overly complicated and often won’t get around to doing so, feeling the effort outweighs the value.”

Commercial lines

Even on the commercial lines side, progress has not been as rapid as generally imagined. Helene Stanway, president of Sense Consortium (see Box 1), can name the insurers involved on the fingers of one hand.

She stresses that the commercial property, fleet, marine (both hull and cargo) and aviation sectors are all seeing the IoT used very extensively by clients that the insurance industry underwrites but that few insurers are using it for their own purposes.

She says: “We don’t have a technology problem, we have an adoption problem, and under 1% of insured commercial buildings actually have smart devices linked to insurance.

“Our recent research shows 21 different adoption blockers, and one of the main ones is the perception that insurers will put premiums up because the IoT means they know so much more about the risk.

“So insurers need longer-term relationships to fix this and should maybe consider renewing less often than annually.”

Because of the wider adoption of the new technology by businesses themselves, the risk that commercial policyholders will deduce that they need less insurance, and opt to self-insure instead, seems far greater than with personal lines.

Insurers need to get their act together. Fast.